Tuesday, January 2, 2018

Only You Can Prevent School Finance Ignorance!

I'm thinking about trying to convince @SchlFinance101 to start a School Finance Hall of Shame, where we would regularly acknowledge great feats of public ignorance in the field of education fiscal policy.

My first nominee for 2018 would have to be this piece in today's edition of NJ Spotlight, a monumental display of school finance ignorance. For the academy's consideration, I offer this excerpt:

Senseless school funding

Compounding the problem for middle-class taxpayers is the state’s senseless school-funding plan that shovels truck loads of money to a handful of school districts while leaving suburban taxpayers to fund more than 90 percent of their school needs while they also pay more than 80 percent of other people's school costs. More state school aid money goes to Newark than to all of Monmouth and Ocean counties combined. Morris County, in total, gets less state aid than the City of Passaic; the same goes for Bergen County. Jersey City gets more annual state aid than either Salem, Somerset, Sussex, or Warren counties. Yet, the Legislature refuses to make changes to fairly distribute state aid that comes from the very taxpayers who are paying the most taxes to Trenton.

Where to begin?

First: true greatness in school funding ignorance requires comparisons that are not only specious, but utterly lacking in any attempt at fairness. Take, for example:

Jersey City gets more annual state aid than either Salem, Somerset, Sussex, or Warren counties.

We'll leave aside the many complex problems with this comparison and ask a very, very simple question: Should a small, sparsely populated county get as much aid as a large, densely populated city?

Even if you believe in absolutely insane ideas like "fair funding," where every student gets the same amount of state aid, Jersey City would get more aid than Salem, Sussex, and Warren Counties because Jersey City has more students!

I really should stop here - this op-ed, which can't even deal with the most basic mathematical concepts, clearly doesn't deserve any more attention. But let's use this as a teachable moment and dive into another concept that appears to elude so many who opine so loudly about school finance policy -- tax capacity.

Imagine two houses that are exactly the same, but located in two different towns.

Each house is exactly the same in all details, and each costs the same (in the real world they don't*). One, however, is located in hard-scrabble Palookaville, where it's one of the most expensive properties in town. The other is the cheapest house in Hoity-Toity Village, where McMansions abound.

In other words: one house is located in a relatively property-poor town, while one is in a property-rich community.

Now, for the purposes of this example, we will do something utterly unforgivable and set aside the tons and tons of research that shows students in greater economic disadvantage require more resources to achieve equal educational opportunity. Instead -- just this once -- we will imagine that each town wants to raise equal amounts of revenue per pupil for its schools.

Again, we are setting aside boatloads of research that shows less advantaged students need more resources and, instead, simply imagining what tax rates each town needs to set to get equal funding for its students. As a matter of basic math, property-poor towns must set higher tax rates to raise the same amount of money as property-rich towns.

In Palookaville, houses cost $100K on average. To raise $10K per house, the town has to set a tax rate of 10 percent. But in Hoity-Toity Village, houses cost $1 million on average. To raise $10K per house, they only have to levy a 1 percent property tax.

Now let's go back to our two equivalent houses. How much does each pay?

Houses in property-poor communities must pay higher tax rates than similar houses in property-rich communities to raise the equivalent amount of revenue.

This disparity is exactly the reason that we have state aid to begin with. If the state didn't step in and try to equalize the different tax bases in communities with varying amounts of property wealth, poor communities would be at a perpetual disadvantage just trying to raise the same amounts of revenue.

Back in 2016, Ajay Srikanth and I broke this phenomenon down in detail when we critiqued Chris Christie's "Fairness Formula." I wish I could say we were making an original point -- we weren't. Because this is one of the most basic ideas in public policy: Wealthier communities have a greater capacity to generate revenues than less-wealthy communities. If you don't understand this, you have no business opining about... well, anything.

Now, I will be the first one to say that New Jersey, and all other states, should take a hard look at how they determine the taxing capacity of school districts before they implement their school funding formulas. In New Jersey, there is a legitimate argument to be made that some -- some -- communities getting large amounts of state aid should pitch in a greater share of local taxes.

But ignorance like this is keeping us from having the serious conversation we need to have. Stop the madness.

Sadly typical school finance roundtable.

* As one of America's best economists, Leah Platt Boustan, points out, people understand that living in a property-wealthy community can lower their tax rate. So they will pay more for their house to live there. The houses in our example wouldn't cost the same; the one in the wealthy community would cost more. And it would be worth it: better services, lower tax rates.

1 comment:

If you wanted to bolster an argument that NJ's middle-class communities are treated fairly in terms of state aid you could refer to the indirect, hidden streams of state aid NJ has that are distributed independently of district wealth, such as TPAF payments, FICA payments, and post-retirement medical.

Plus, the deductability of property taxes up to $10k for NJ income taxes is largely a benefit for middle-class and affluent towns.